While small-cap stocks, such as Bovie Medical Corporation (AMEX:BVX) with its market cap of USD $123.13M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. See our latest analysis for BVX
Does BVX generate an acceptable amount of cash through operations?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Can BVX pay off what it owes to its debtholder by using only cash from its operational activities? Last year, BVX’s operating cash flow was -1.47x its current debt. This means what BVX can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at BVX’s operations at this point in time.
Can BVX pay its short-term liabilities?
What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, BVX may need to liquidate its short-term assets to meet these upcoming payments. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that BVX is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Can BVX service its debt comfortably?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. For BVX, the debt-to-equity ratio is 12.53%, which indicates that its debt is at an acceptable level.
Are you a shareholder? BVX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that BVX’s financial situation may change. You should always be keeping on top of market expectations for BVX’s future growth on our free analysis platform.
Are you a potential investor? BVX’s low-debt position gives it headroom for future growth funding in the future. In addition, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more confidence in the stock, you need to also examine BVX’s track record. As a following step, you should take a look at BVX’s past performance analysis on our free platform to conclude on BVX’s financial health.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.